That paper gold, in the form of electronic ones and zeros, typically used by various gold ETFs, or anything really that is a stock certificate owned by the ubiquitous Cede & Co (read about the DTCC here), is in a worst case scenario immediately null and void as it is, as noted, nothing but ones and zeros on some hard disk that can be formatted with a keystroke, has long been known, and has been the reason why the so called gold bugs have always advocated keeping ultimate wealth safeguards away from any form of counterparty risk. Which in our day and age of infinite monetary interconnections, means virtually every financial entity. After all, just ask Gerald Celente what happened to his so-called gold held at MF Global, or as it is better known now: "General Unsecured Claim", which may or may not receive a pennies on the dollar equitable treatment post liquidation. What, however, was less known is that physical gold in the hands of the very same insolvent financial syndicate of daisy-chained underfunded organizations, where the premature (or overdue) end of one now means the end of all, is also just as unsafe, if not more. Which is why we read with great distress a just broken story by Bloomberg according to which HSBC, that other great gold "depository" after JP Morgan (and the custodian of none other than GLD) is suing MG Global "to establish whether he or another person is the rightful owner of gold worth about $850,000 and silver bars underlying contracts between the brokerage and a client." The notional amount is irrelevant: it could have been $0.01 or $1 trillion: what is very much relevant however, is whether or not MF Global was rehypothecating (there is that word again), or lending, or repoing, or whatever you want to call it, that one physical asset that it should not have been transferring ownership rights to under any circumstances. Essentially, this is at the heart of the whole commingling situation: was MF Global using rehypothecated client gold to satisfy liabilities? The thought alone should send shivers up the spine of all those gold "bugs" who have been warning about precisely this for years. Because the implications could be staggering.

Probably the core primary consequence of this discovery, which obviously has a factual basis, or else it would not lead to an actual lawsuit between two "reputable" firms (aka ponzi participants), is whether gold in the GLD warehouse, supervised by HSBC, is truly theirs, or has it all been hypothecated from some other broker who never really had the asset or the liquidity, and so on in what effectively can be an infinite chain of repledging one asset to countless counterparties. Because if there is on cockroach...

Suffice to say, expect either a prompt settlement in this lawsuit, or a fervent denial by all parties involved that any gold was misplaced. Because here is the punchline: each physical gold or silver bar has a unique deisgnator that should never be replicated, yet this is precisely what happened to lead to the lawsuit! In a non-banana world, there should never be any debate over who owns a given physical asset, as replicated ownership (note - not liens) effectively means someone stole the gold (or there was counterfeiting involved) and was never caught... until MF Global finally expired of course.

So in other words, is this the eureka moment when everyone realizes that any gold, be it paper or physical, is either a irrelevant electronic binary claim held in some semiconductor, or at best an asset in some vault, that the brokerage next door suddenly also has claims over?

The end result is that the biggest loser is Joe Sixpack who bought the gold, and decided to keep it in a bank warehouse for "safekeeping" only to realize said gold will never be seen or heard of again.

Five gold bars and 15 silver bars underlie eight Comex contracts between the brokerage and client Jason Fane of Ithaca, New York, London-based HSBC said in a court filing yesterday. Both parties have asserted claims to the bars, creating difficulties for HSBC, which is storing them, the bank said, asking a judge to decide who the rightful owner is.

“HSBC has received conflicting instructions regarding ownership and disposition of the property,” it said. “Accordingly, HSBC is exposed to multiple liabilities with respect to the disposition of the properties.”

According to Fane’s letter, the five Comex gold contracts are for an average of 99 ounces of gold each.

Giddens, who is liquidating the brokerage, has transferred about 38,000 commodity accounts to other firms. Three transfers of collateral made and pending will give commodity customers more than $4 billion of their assets, according to court filings.

The punchline:

The judge handling the bankruptcy said today he would deal in January with issues about distributing physical goods, such as gold and silver bars, after lawyers for some customers said they couldn’t get their share of the payouts because bars can’t be broken into pieces.

...indeed there is a reason why people say gold can not be diluted.

As for our advice: move any gold out of the LBMA or CME warehouse system immediately. And only treat any GLD investment as a day trading vehicle that can and will be lost the second there is a global liquidity or solvency freeze, because that particular asset will be wiped out as easily as "C:\format C:"

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Update: as reader D points out, none of this should come as a surprise: after all the UK financial regulator, the FSA, already warned about each step of this unwind back in March 2010.

3.1 In this chapter we consider restricting two practices we believe pose an unacceptable risk to protecting client money and assets, and financial stability.

a) Restricting the placement of client money deposits within a group

Scope

3.2 Please note that our policy proposals in this section apply to UK authorised firms that place client money in client bank accounts held with a group bank, credit institution or qualifying money market fund. These requirements will not apply to incoming EEA firms conducting investment business, as under MiFID regulating client assets is a home state responsibility. We will consider extending these proposals to general insurance intermediaries when we begin reviewing CASS 5 – Insurance Mediation Activity in the first quarter of 2011.

Intra-group client money deposits

3.3 CASS contains guidance requiring firms to conduct an appropriate level of due diligence on institutions with which client money is held and to ensure deposits are appropriately diversified. We currently allow firms to hold client money with a deposit taker within the same group as the firm subject to appropriate due diligence and diversification.

3.4 There is no standard market practice for depositing client money within a group structure. For example, a number of investment firms take an explicit decision to hold client money deposits outside of the group, while other firms deposit significant amounts intra-group. Existing handbook provisions seek policy outcomes that ensure an appropriate level of diversification is achieved to protect clients’ money.

3.5 CASS contains provisions regarding a firm’s selection of a bank, credit institution or qualifying money market fund. A firm must exercise all due skill, care and diligence in selecting, appointing and periodically reviewing the institution where the client money is deposited and arrangements for holding this money. Handbook guidance also provides a list of matters a firm should consider in the process.

3.6 The money deposited at a group bank is held on trust by the firm for the firm’s clients, but it is treated as an ordinary banking deposit at the bank. Put another way, all client money at the end of a chain will eventually be held as a deposit. There is always a risk that a bank with which the deposit is held will enter insolvency proceedings and at this point it becomes possible that not all money deposited in client bank accounts as client money will be available for return to the underlying clients. Accordingly, the regime does not envisage a 100% return to clients in the event that client money is lost due to a bank’s insolvency, with CASS providing that clients will generally share rateably in the loss.

3.7 The issue under consideration is not that the funds are held as a deposit, but that when held within a group, there is an increased contagion risk that both the investment firm and the group bank or affiliate will fail simultaneously (or one will fail shortly after the other).

3.8 The resulting risk is that a firm will place an inappropriate amount of client money intra-group, usually as a source of liquidity, which has a lower cost of capital than external sources. Furthermore, as a group’s financial position deteriorates, there is a risk that firms within the group will deposit more client money intra-group to fund operations. This may give clients an inappropriate level of exposure to the bank’s credit risk. It also may lead to clients unfairly bearing the risk of the group as a whole, rather than just the individual firm. The existing sourcebook provisions which address this mismatch of firms’ and their clients’ incentives can be strengthened so the risk to clients is mitigated in the event of a firm’s default.

3.9 Imposing a hard limit on the proportion of client money which can be held intra-group is attractive and will mitigate concentration risk. However, limiting the level of client monies held within a group may increase overall credit risk where outside options are less highly rated. We have considered consulting on the basis of a 20% limit in order to fully identify stakeholders’ concerns, particularly if there is a knock-on effect on liquidity.

3.10 We have worked with firms during 2009 to reduce the concentration of client money held intra-group. During pre-consultation firms estimated that the proposals would result in an increase of approximately 10–25 basis points for additional costs, together with removing stable funding and increasing compliance and operational overheads.

3.11 Accordingly, we propose limiting the amount of client money held by a firm which can be deposited in intra-group client bank accounts to 20%. We understand firms may require some flexibility in holding money intra-group (for example, where a firm’s client specifically requests their money is held with that specific institution) and propose to address this on a case by case basis. We also propose changing existing guidance into a rule to provide a clear basis for our expectations.

3.12 We take this opportunity to highlight that our proposal to re-introduce a client money and asset return to the FSA (see below) which includes content regarding intra-group client money deposits.

b) Prohibiting the use of general liens in custodian agreements

Scope

3.13 Our proposals apply to all UK authorised investment firms and overseas branches of these UK firms. These requirements will not apply to incoming EEA fiirms conducting investment business as under MiFID regulating client assets is a home state responsibility.

3.14 Some firms in the UK appear to have inappropriately allowed custodians and subcustodians to include general liens covering, for example, group indebtedness to the custodian or sub-custodian in contractual agreements, or they have failed to pay due regard to this issue. As we have observed from LBIE’s insolvency, liens have contributed to significant delays or obstacles in an IP’s ability to recover assets from depots not under their direct control.

3.15 CASS 6.3.3G requires a firm to consider the terms of its agreements with third parties with which it will deposit a client’s safe custody assets. As part of this guidance, the firm should consider restrictions over the third party’s right to claim a lien, right of retention or sale over any safe custody asset in the account, as well as identifying client assets separately from assets belonging to the firm.

3.16 We believe the sourcebook can be enhanced with hard rules rather than guidance in this regard. This would enable us to effectively monitor compliance and take enforcement action where appropriate.

3.17 Accordingly, we are consulting on the basis of changing the existing guidance into a rule. We propose creating a rule that prohibits using general liens over client assets which are held under custodian agreements, except to cover the situation when a firm (or if the client has a direct relationship with the custodian, the client) does not pay custodian fees and charges to the third party holding the custody assets.

If you can buy it with a dime, it means silver is undervalued. Oil has become scarcer than silver during the same period of time. Therefore, it should be worth a silver quarter and not a silver dime as it once did. How much will the last gallon of oil should be worth in silver terms?

We tried to warn you people who thought physical and paper metal was one and the same. You didn't listen to us and so, if you even have any time left to take possesion, hopefully you will listen to Olivia Newton-John:

Its all a mater of figure of speech or how you look at it. Like you can say, that’s the shit or that’s the bomb, but you cant say that’s the shit bomb. It just doesn’t sound right. Or you can say that’s phat, or like butter, but you cant say butter phat. And under no circumstance ever ever say shit bomb butter phat!

The only why I could see it go to parity would be due to some technical glitch. There is much more silver than gold. I dont feel gold will loose its value in relation to silver since Central banks own gold (not silver).

There is much more silver than gold in the ground. But the silver stockpile that has been hoarded since 4500 BC has been almost totally expended thanks to industrial demand that has only appeared in the last 150 years. There was a time when there was 20 times as much silver above ground as gold. Now there is less than 1/3rd as much. The price must move in order to correct this imbalance. It will take ten years at current production levels with ZERO INDUSTRIAL USE to build a stockpile of silver equal to that of gold.

From GoldSilver.com - "Currently, there is only enough investment-grade gold available on Earth for every living person to have 1/3rd of an ounce." and ".. there is only enough investment-grade silver on Earth for every person to have 1/14th of an ounce."

My problem with Rhodium, Paladium and Platinum is I have no way to determine if it's real (ie what it looks like) and it's content (fineess).

With Gold or Silver there are ways to determine both. It's why I didn't buy diamonds - neither I or a potential buyer/trader can easily agree on quality or value, the opposite of junk silver where almost anyone can determine its' validity and silver content.

Just saying - ie in the case of the SHTF or currency failure.

If it's not SHTF or not currency failure and you're talking about short term investment, you may be right about Rhodium; beyound my pay grade to estimate this.

Trav lives in his own world, where any and all qualities are linked only to race, and no other variables. In his world, the state is God, and it's bounties are only denied to us by inferior beings, who should be sterilized so that the remaining 3% can breed like rabbits.

Trav, there is on difference that is not discussed between silver and say oil. Once a oil well is drilled and online, the flow is constant until such reserve is drawn. Silver usually takes constant mining and work load to draw the silver from the mine.

yes. down the road, perhaps even the same one on which the can is kicked, will be things different from today. countervailing forces. thesis-antithesis=synthesis. don't say it can't happen (again) just because it hasn't happened yet (isn't happening now).

If silver industrial demand fades, it means we have entered a new dark age, and things will definitely NOT be boring.

Silver is used in practically every high tech electronic device. The only thing that could stop that demand is a total systemic collapse.

Not to mention the fact that if there were such a tremendous crash, investment demand in silver would soar right alongside gold, and would greatly exceed it as there is so much less silver than there is gold, and it would become much more expensive to extract, as the demand for the base metals that currently subsidize silver extraction costs would crash.

That has almost always been the case. China has always been silver poor. For much of its history, silver was valued at 1/4th gold. This was not corrected until the major silver mines came online in Japan sone hundreds of years ago.

The only exception is when China turned out its silver hoards to the West to continue the silver supression scheme.

I believe the long-term Au::Ag ratio changed from 12::1 to 17::1 after Europeans discovered the western hemisphere and all its long-amassed silver.

I can't bring myself to believe in your parity idea, but i'm not far off. My thesis is that Au::Ag goes back to historical ratio ( 15::1 ) and then overshoots significantly. My guess is overshoot by no less than a factor of 1.5 -- that seems very conservative -- and by no more than a factor of 5. So my guess is Au::Ag top is between 10::1 and 3::1 .

At 3::1 I would definitely be selling Ag for Au. And not because "what I really want is gold". ( DCRB, noto bene ). Just because at 3::1 I think Ag would be clearly overpriced. Price does not depend only on scarcity, but on emotion & memory as well. And by the time we reach 3::1, there would have been an awful lot of new silver mines getting started.

Of course, I also sold Network Appliance a month after they went public, so ... take my silver advice with a grain of salt.

That is a more likely "final" goal. The problem is the extreme deficit in silver above ground, vs gold, where nearly every ounce ever mined is still available. It would take ten years at current production rates with no industrial usage for silver reserves to equal those of gold.

We have a system of normalcy bias that is, at its youngest, 4500 years old, where silver has always and everywhere been cheaper and more abundant than gold. But we are entering a new regime, where that is not the case, as the reserves we have above ground are the same for gold, but the silver is depleted. Supply and demand must take hold and raise the price high enough for the silver stockpile to grow again if we are to re-enter the regime where silver is cheaper than gold.

There was a time and place when silver was two to four times as valuable as gold (from the pre-dynastic period until the first intermediate period, when trade with silver refining Greece opened up). It has happened before, based on above ground reserves, and it will happen again.

It would be interesting to see if under such a dark age scenario that the copper mines continued production not because of the demand for copper, but because the by-product silver raised so much in worth that mining operations would still be profitable.

what a retard...a new dark ages all because silver is going to defy your supersmart predictions.

Silver is still substantially more abundant in the crust in ANY EVENT than gold is...a GSR of 1 is more likely in the event gold crashes to $32 than the opposite.

Nobody is going to invest in silver in a crash you idiot. Haven't you cost ENOUGH PEOPLE their life savings with your shameless silver pumping?

WTF is this there is far less silver than gold? That is complete bullshit. There is 15x as much silver in the earth's crust than there is gold, and hundreds of millions of ounces more mined per year than gold.

You want to make a case for parity and shit, make it on palladium, not silver. Stop your stupid lunatic silverbugz pumper bullshit, dude.

Wrong....can't use the silver sitting under thousands of ton of rock. And the industrial uses of silver especially since 1980 have drained the supply.

Silver is money, and will be used as money again after the crash, despite what you think. The transitory above-ground shortage in supply will cause the value to soar and it will take years if not decades for mining to restore balance.

it boils down to the question how easily can the used up silver be recycled? Because the silver is actually there, its not used up, its just indisposed for the moment. Silver is a pure element, you cant use it up like other compounds/molecules.
So every big dumping ground for electronics and household appliances contains maybe hundreds of kilos of silver....

what is harder? mining the silver or recycling it? What takes more oil?

Industrial use is generally destructive to silver. What was once tens of billions of ounces is now under a billion. Silver is not mined directly because of the low price...it is a "byproduct" of searching for other metals. Most of the "new" silver supply on the market is recycled already - 215 million ounces in 2010 according to the Silver Institute.

To be profitable to start digging in landfills for tiny fractions of an ounce of silver in unrecycled cell phones and computer - silver would probably need to be many thousands of dollars per ounce in my non-expert opinion. Those same cell phones and PC's have Gold in them and mostly everyone ignores them and tosses them out.

Of course, that article is old, and the numbers don't match what I said (his are more bullish for silver than mine). The situtaion has only gotten worse, as you can track the change in silver inventories at the Silver Institute. We keep using more than we mine.

tmosley's talking about silver going to parity with gold during a possible price spike, NOT as a permanent or long-term situation, in which case the roughly 15:1 ratio (or somewhat less, given modern industrial demand for silver) could well take hold again --- that is, if the price suppression campaign by TPTB were to finally come to an end.

And if the amount of above-ground silver "does NOT FUCKING MATTER as far as setting the price", then I guess we can just stop mining it altogether --- because the price will not rise, according to you, because the supply is irrelevant, right?

Really, Trav, sometimes you can be such an idiotic asswipe and a dipshit.

His racism serves a dual purpose. First, people see his filth when they come here, which helps to discredit the comments section. Second, his racism allows him to subtly promote the state. He can blame ANYTHING on blacks because they exist within the bureaucracy. "Sure, the fundamental model is fine, it's just that there are all these low IQ monkeys in there." He does the same thing with peak oil. "There is nothing the government could have done, this crisis was caused by peak oil--trust your government, they will take away our freedoms to save us!"

Shill seems likely. At a minimum, he has simply been totally corrupted because his wife and kids left him, so he spouts the vilest trash he can think of to try to hurt others like he has been hurt.

These are the actions of a weak, inferior individual. Quite certain that some day soon he will go into his former office (I doubt he has a job) and murder everyone there before killing himself like the weak willed faggot that he is.

You obviously have a fair level of intelligence (at least sporadically), but you should know, Trav, that you almost always come across as a complete prick and exceedingly unpleasant asshole --- the kind of guy who people meet at parties and then do anything and everything they can to get away from.

But if you honestly don't give a damn about being an irritating, arrogant, disagreeable dickwad ..... carry on.

Why would anyone who thinks Pm's are a joke spend so much time on a forum like this? I like hunting and fishing. I don't go over to the PETA forums and tell them they are wrong, I go hunting. Why would you care about what other "crazy" people chat about? Shill?... I'll bet FRN's its just a dose of crazy.

If we had 100 years worth of oil in tankers, it would matter. If the market was used to having 100 years worth, and then it was suddenly revealed we have 3 days worth, what reaction do you think the market would have?

But by all means, don't put any thought into your answer. Just blame it on the genetically inferior.

It's not really his fault --- Trav went into a store today and had to deal with not only a hymie salesman, but a spic cashier and a nigger security guard as well, and the experience left him totally unhinged. He's organizing a Stormfront boycott of that store even as we speak.

We mine, not the Earth, numbnutz. Since silver is almost all a byproducts of goodtimes mining for boomy base metals, a severe downturn, which is inevitable, will see a big drop in base metal mining and a total cessation of silver supply, whereas silver demand will not go away (too many vital applications). I smell a huge price pop coming!

High tech is hitting a dead-end. Economies of scale brought it here, and the reversal of economies of scale will take it out.

Who s going to be buying high tech stuff in the future? Folks who are already drowning in high-tech toys, folks that are massively in debt?

It's all a Ponzi. If it can't continue to grow it will collapse. And given that this is a finite planet it is an absolute certainty that growth will end.

"Not to mention the fact that if there were such a tremendous crash, investment demand in silver would soar right alongside gold"

Shit ONLY works when the majority are playing the game. People are getting poorer, not richer. In the future people won't be able to sit on a pile of PMs (even IF they had "wealth" above the subsistence level). It'll be like the scenario of the millionares stranded on an deserted island trying to exchange their money to each other for goods and services that none of them are able to produce.